Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.

YES

X

NO

Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (Section 232.405 of
this chapter) during the preceding 12 months (or for such shorter period that
the registrant was required to submit and post such files).

YES

NO

Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting
company. See definitions of “large accelerated filer,” “accelerated
filer” and smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check
one):

Large
accelerated filer

X

Accelerated
filer

Non-accelerated
filer

Smaller
reporting company

Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).

YES

NO

X

As of
April 30, 2009, the Company had 23,410,745 shares of Common Stock, par value
$0.001 per share, outstanding.

1

CABOT
MICROELECTRONICS CORPORATION

INDEX

Part
I. Financial Information

Page

Item
1.

Financial
Statements

Consolidated
Statements of Income Three and Six Months Ended March 31, 2009 and
2008

3

Consolidated
Balance Sheets March 31, 2009, and September 30, 2008

4

Consolidated
Statements of Cash Flows Six Months Ended March 31, 2009 and
2008

5

Notes
to the Consolidated Financial Statements

6

Item
2.

Management's
Discussion and Analysis of Financial Condition and Results of
Operations

20

Item
3.

Quantitative
and Qualitative Disclosures About Market Risk

30

Item
4.

Controls
and Procedures

31

Part
II. Other Information

Item
1.

Legal
Proceedings

32

Item
1A.

Risk
Factors

32

Item
2.

Unregistered
Sales of Equity Securities and Use of Proceeds

37

Item
4

Submission
of Matters to a Vote of Security Holders

37

Item
6.

Exhibits

38

Signatures

39

2

PART
I. FINANCIAL INFORMATION

ITEM
1.

CABOT
MICROELECTRONICS CORPORATION

CONSOLIDATED
STATEMENTS OF INCOME (LOSS)

(Unaudited
and in thousands, except per share amounts)

Three
Months Ended

Six
Months Ended

March
31,

March
31,

2009

2008

2009

2008

Revenue

$

45,399

$

94,488

$

108,416

$

187,866

Cost
of goods sold

32,689

52,212

67,000

100,817

Gross
profit

12,710

42,276

41,416

87,049

Operating
expenses:

Research,
development and technical

12,621

12,432

24,735

23,853

Selling
and marketing

5,261

6,907

11,234

13,191

General
and administrative

10,590

12,856

21,916

23,695

Purchased
in-process research and development

1,500

-

1,500

-

Total
operating expenses

29,972

32,195

59,385

60,739

Operating
income (loss)

(17,262

)

10,081

(17,969

)

26,310

Other
income, net

477

1,689

1,353

3,324

Income
(loss) before income taxes

(16,785

)

11,770

(16,616

)

29,634

Provision
(benefit) for income taxes

(6,672

)

3,828

(6,619

)

9,493

Net
income (loss)

$

(10,113

)

$

7,942

$

(9,997

)

$

20,141

Basic
earnings (loss) per share

$

(0.44

)

$

0.34

$

(0.43

)

$

0.86

Weighted
average basic shares outstanding

23,107

23,402

23,053

23,555

Diluted
earnings (loss) per share

$

(0.44

)

$

0.34

$

(0.43

)

$

0.85

Weighted
average diluted shares outstanding

23,107

23,416

23,053

23,587

The
accompanying notes are an integral part of these consolidated financial
statements.

3

CABOT
MICROELECTRONICS CORPORATION

CONSOLIDATED
BALANCE SHEETS

(Unaudited
and in thousands, except share amounts)

March 31,

2009

September 30, 2008

ASSETS

Current
assets:

Cash
and cash equivalents

$

158,971

$

221,467

Short-term
investments

-

4,950

Accounts
receivable, less allowance for doubtful accounts of $1,222
at

March
31, 2009, and $403 at September 30, 2008

28,327

41,630

Inventories

52,764

47,466

Prepaid
expenses and other current assets

16,198

10,714

Deferred
income taxes

3,959

4,365

Total
current assets

260,219

330,592

Property,
plant and equipment, net

125,788

115,843

Goodwill

37,753

7,069

Other
intangible assets, net

19,224

8,712

Deferred
income taxes

12,366

11,178

Other
long-term assets

15,646

4,043

Total
assets

$

470,996

$

477,437

LIABILITIES
AND STOCKHOLDERS’ EQUITY

Current
liabilities:

Accounts
payable

$

9,312

$

13,885

Capital
lease obligations

1,169

1,129

Accrued
expenses and other current liabilities

12,535

22,787

Total
current liabilities

23,016

37,801

Capital
lease obligations

1,923

2,518

Other
long-term liabilities

9,992

2,885

Total
liabilities

34,931

43,204

Commitments
and contingencies (Note 9)

Stockholders’
equity:

Common
stock:

Authorized:
200,000,000 shares, $0.001 par value

Issued:
26,108,979 shares at March 31, 2009, and 25,906,990 shares at September
30, 2008

26

26

Capital
in excess of par value of common stock

206,244

198,022

Retained
earnings

313,125

323,122

Accumulated
other comprehensive income

6,995

3,054

Treasury
stock at cost, 2,698,160 shares at March 31, 2009, and 2,683,809 shares at
September 30, 2008

(90,325

)

(89,991

)

Total
stockholders’ equity

436,065

434,233

Total
liabilities and stockholders’ equity

$

470,996

$

477,437

The
accompanying notes are an integral part of these consolidated financial
statements.

4

CABOT
MICROELECTRONICS CORPORATION

CONSOLIDATED
STATEMENTS OF CASH FLOWS

(Unaudited
and amounts in thousands)

Six
Months Ended March 31,

2009

2008

Cash
flows from operating activities:

Net
income (loss)

$

(9,997

)

$

20,141

Adjustments
to reconcile net income to net cash provided by operating
activities:

Purchases
of property, plant and equipment in accrued liabilities and accounts
payable at the end of the period

$

562

$

1,913

Issuance
of restricted stock

4,209

4,674

Assets
acquired under capital leases

-

44

The
accompanying notes are an integral part of these consolidated financial
statements.

5

CABOT
MICROELECTRONICS CORPORATION

NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited
and in thousands, except share and per share amounts)

1.
BACKGROUND AND BASIS OF PRESENTATION

Cabot Microelectronics Corporation
("Cabot Microelectronics'', "the Company'', "us'', "we'' or "our'') supplies
high-performance polishing slurries and pads used in the manufacture of advanced
integrated circuit (IC) devices within the semiconductor industry, in a process
called chemical mechanical planarization (CMP). CMP polishes surfaces
at an atomic level, thereby enabling IC device manufacturers to produce smaller,
faster and more complex IC devices with fewer defects. We believe we
are the world’s leading supplier of slurries for IC devices. We also
develop, manufacture and sell CMP slurries for polishing certain components in
hard disk drives, specifically rigid disk substrates and magnetic heads, and we
believe we are one of the leading suppliers in this area. In
addition, we develop, produce and sell CMP polishing pads, which are used in
conjunction with slurries in the CMP process. We also pursue a
variety of other demanding surface modification applications outside of the
semiconductor and hard disk drive industries for which our capabilities and
knowledge may provide value in improved surface performance or
productivity. For additional information, refer to Part 1, Item 1,
“Business”, in our annual report on Form 10-K for the fiscal year ended
September 30, 2008.

The unaudited consolidated financial
statements have been prepared by Cabot Microelectronics Corporation pursuant to
the rules of the Securities and Exchange Commission (SEC) and accounting
principles generally accepted in the United States of America. In the
opinion of management, these unaudited consolidated financial statements include
all normal recurring adjustments necessary for the fair presentation of Cabot
Microelectronics’ financial position as of March 31, 2009, cash flows for the
six months ended March 31, 2009, and March 31, 2008, and results of operations
for the three and six months ended March 31, 2009, and March 31,
2008. The results of operations for the three and six months ended
March 31, 2009, may not be indicative of the results to be expected for future
periods, including the fiscal year ending September 30, 2009. These
unaudited consolidated financial statements should be read in conjunction with
the consolidated financial statements and related notes thereto included in
Cabot Microelectronics’ annual report on Form 10-K for the fiscal year ended
September 30, 2008. We currently operate predominantly in one
industry segment - the development, manufacture and sale of CMP
consumables.

The consolidated financial statements
include the accounts of Cabot Microelectronics and its
subsidiaries. All intercompany transactions and balances between the
companies have been eliminated as of March 31, 2009.

2.
BUSINESS COMBINATION

On February 27, 2009, we completed the
acquisition of Epoch Material Co., Ltd. (Epoch), which previously was a
consolidated subsidiary of Eternal Chemical Co., Ltd.
(Eternal). Epoch is a Taiwan-based company specializing in the
development, manufacture and sale of copper CMP slurries and CMP cleaning
solutions to the semiconductor industry, and color filter slurries to the liquid
crystal display (LCD) industry. At the initial closing of the
transaction on February 27, 2009, we paid $59,391 to obtain 90% of Epoch’s
stock, plus $699 of transaction costs, from our available cash
balance. We expect to pay an additional $6,600 to Eternal in August
2010 to acquire the remaining 10% of Epoch’s stock and we have placed $6,600 in
an escrow account in Taiwan to be held for this purpose until the payment
date. The escrow account is recorded as long-term restricted cash at
March 31, 2009 and is included with other long-term assets on our Consolidated
Balance Sheet. During this interim period, Eternal will continue to
hold the remaining 10% ownership interest in Epoch. However, Eternal
has waived rights to any interest in the earnings of Epoch during the interim
period, including any associated dividends. Consequently, we have
recorded a $6,600 long-term liability on our Consolidated Balance Sheet at March
31, 2009 rather than recording a minority interest in Epoch.

6

CABOT
MICROELECTRONICS CORPORATION

NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited
and in thousands, except share and per share amounts)

We account for all business
combinations in accordance with Statement of Financial Accounting Standards No.
141, “Business Combinations” (SFAS 141). Accordingly, the assets and
liabilities of the acquired entity are recorded at their estimated fair values
at the date of acquisition. Goodwill represents the excess of the
purchase price over the fair value of net assets and amounts assigned to
identifiable intangible assets. Purchased in-process research and
development (IPR&D), for which technological feasibility has not yet been
established and no future alternative uses exist, is expensed immediately in
accordance with SFAS 141.

The purchase price for Epoch was
allocated to tangible assets, liabilities assumed, identified intangible assets
acquired, as well as IPR&D, based on our preliminary estimation of their
fair values. The excess of the purchase price over the aggregate fair
values was recorded as goodwill. The following table summarizes the
preliminary purchase price allocation.

At
February 27, 2009

Current
assets

$

11,453

Long-term
assets

13,965

In-process
research and development

1,500

Identified
intangible assets

11,510

Goodwill

29,758

Total
assets acquired

68,186

Total
liabilities assumed

1,496

Net
assets acquired

$

66,690

Results of Epoch’s operations from
February 27, 2009, through the end of the fiscal quarter are included in our
consolidated financial statements. Pro forma results of operations
from prior periods have not been presented because the effects of the
acquisition were not material to the Company’s results.

3.
FAIR VALUE OF FINANCIAL INSTRUMENTS

On October 1, 2008, we adopted the
provisions of Statement of Financial Accounting Standards No. 157, “Fair Value
Measurement” (SFAS 157) for all financial assets and financial
liabilities. SFAS 157 establishes a common definition for fair value
in generally accepted accounting principles, establishes a framework for
measuring fair value and expands disclosure about such fair value
measurements. On October 1, 2008, we also adopted FASB Staff Position
(FSP) 157-3, “Determining the Fair Value of a Financial Asset When the Market
for that Asset is Not Active” (FSP 157-3), which clarifies the application of
SFAS 157 in an inactive market and illustrates how an entity would determine
fair value when the market for a financial asset is not active. In
accordance with FSP 157-2, “Effective Date of FASB Statement No. 157” (FSP
157-2), we have not yet adopted the provisions of SFAS 157 that relate to
non-financial assets and non-financial liabilities.

On October 1, 2008, we adopted the
provisions of SFAS No. 159, “The Fair Value Option for Financial Assets and
Financial Liabilities – Including an Amendment of FASB Statement No. 115” (SFAS
159). SFAS 159 allows measurement at fair value of eligible financial
assets and financial liabilities that are not otherwise measured at fair value
on an instrument-by-instrument basis (the “fair value option”). We
did not elect the fair value option for any financial assets or financial
liabilities that were not previously required to be measured at fair
value.

7

CABOT
MICROELECTRONICS CORPORATION

NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited
and in thousands, except share and per share amounts)

In April 2009, the FASB issued FSP FAS
115-2 and FAS 124-2, “Recognition and Presentation of Other-Than-Temporary
Impairments”, FSP FAS 107-1 and APB 28-1, “Interim Disclosures About Fair Value
of Financial Instruments”, and FSP FAS 157-4, “Determining Fair Value When the
Volume and Level of Activity for the Asset or Liability Have Significantly
Decreased and Identifying Transactions That Are Not Orderly”. These
Staff Positions provide additional guidance regarding the measurement and
disclosure of fair value in financial statements. As discussed in
Note 15 of this 10-Q, we are not yet required to adopt these Staff Positions,
but we do not believe these pronouncements will have a material impact on our
financial statements and related disclosures.

SFAS 157 defines fair value as the
price that would be received from the sale of an asset or paid to transfer a
liability (an exit price) in the principal or most advantageous market for the
asset or liability in an orderly transaction between market participants on the
measurement date. SFAS 157 establishes a three-level hierarchy for
disclosure based on the extent and level of judgment used to estimate fair
value. Level 1 inputs consist of valuations based on quoted market
prices in active markets for identical assets or liabilities. Level 2
inputs consist of valuations based on quoted prices for similar assets or
liabilities, quoted prices for identical assets or liabilities in an inactive
market, or other observable inputs. Level 3 inputs consist of
valuations based on unobservable inputs that are supported by little or no
market activity.

The following table presents financial
assets that we measured at fair value on a recurring basis at March 31,
2009. As permitted under the relevant pronouncements, we have chosen
to not measure any of our financial liabilities at fair value in accordance with
SFAS 157 and SFAS 159 as we believe our financial liabilities approximate their
fair value due to their short-term, highly liquid characteristics. We
have classified these assets in accordance with the fair value hierarchy set
forth in SFAS 157. In instances where the inputs used to measure the
fair value of an asset fall into more than one level of the hierarchy, we have
classified them based on the lowest level input that is significant to the
determination of the fair value.

Level 1

Level 2

Level 3

Total

Fair Value

Cash
and cash equivalents

$

158,971

$

-

$

-

$

158,971

Auction
rate securities (ARS)

-

-

8,116

8,116

Total

$

158,971

$

-

$

8,116

$

167,087

Our cash and cash equivalents consist
of various bank accounts used to support our operations and investments in
institutional money-market funds which are traded in active
markets.

Our ARS investments at March 31, 2009
consisted of two tax exempt municipal debt obligations. We
experienced our first failed auction in February 2008, and since that time the
auctions of our two ARS have continued to fail. Despite the failed
auctions, there have been no defaults of the underlying securities and interest
income on these holdings continues to be received on scheduled interest payment
dates. Our ARS, when purchased, were generally issued by A-rated
municipalities. However, the credit rating of one security (with a par value of
$3,400) was downgraded during our second quarter of fiscal 2008. Both
of our ARS (including the downgraded security) are credit enhanced with bond
insurance to obtain a credit rating of AAA.

Since an active market for ARS does not
currently exist, we determine the fair value of these investments using a Level
3 discounted cash flow analysis and also consider other factors such as the
reduced liquidity in the ARS market and nature of the insurance
backing. Key inputs to our discounted cash flow model included
projected cash flows from interest and principal payments and the weighted
probabilities of future successful auctions or debt refinancing by the
issuer. We also incorporate certain Level 2 market indices into the
discounted cash flow analysis, including published rates such as the LIBOR rate
and a municipal swap index published by the Securities Industry and Financial
Markets Association.

8

CABOT
MICROELECTRONICS CORPORATION

NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited
and in thousands, except share and per share amounts)

Based on our fair value assessment, we
determined that one ARS continues to be temporarily impaired as of March 31,
2009. This security has a fair value of $3,166 (par value $3,400) and has been
classified as a long-term asset in Other Long-Term Assets on the Consolidated
Balance Sheet. We believe that this ARS is not permanently impaired
because in the event of default by the municipality, the insurance provider
would pay interest and principal following the original repayment schedule and
we have the intent and ability to hold this investment until the value recovers,
which may be at maturity. During our second fiscal quarter ended
March 31, 2009, we were able to successfully monetize at par value $50 of this
security as the municipality refinanced a portion of its debt. We
determined that the fair value of the other ARS was not impaired as of March 31,
2009. See Note 6 for more information on these
investments.

4.
INVENTORIES

Inventories consisted of the
following:

March
31,

September
30,

2009

2008

Raw
materials

$

30,032

$

21,378

Work
in process

4,368

4,628

Finished
goods

18,364

21,460

Total

$

52,764

$

47,466

The increase in raw material inventory
during the six months ended March 31, 2009 is primarily due to raw materials
that have been purchased under our supply agreements which have minimum volume
purchase requirements based on a six-month forecast. The decrease in
demand for our products during the first six months of fiscal 2009 and our
corresponding reduction in production occurred faster than we were able to
reduce the forecast of raw materials, causing an increase in raw material
inventory levels.

9

CABOT
MICROELECTRONICS CORPORATION

NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited
and in thousands, except share and per share amounts)

5.
GOODWILL AND OTHER INTANGIBLE ASSETS

Goodwill was $37,753 as of March 31,
2009, and $7,069 as of September 30, 2008. The increase in goodwill
resulted from the $29,758 of goodwill allocated to the acquisition of Epoch as
discussed in Note 2, plus $926 due to foreign currency fluctuation of the Taiwan
dollar related to Epoch.

In accordance with Statement of
Financial Accounting Standards No. 142, “Goodwill and Other Intangible Assets”
(SFAS 142), goodwill and indefinite lived intangible assets are tested for
impairment annually in the fourth fiscal quarter or more frequently if
indicators of potential impairment exist, using a fair-value-based
approach. The recoverability of goodwill and other intangible assets
with indefinite lives is measured at the reporting unit level, which is defined
as either an operating segment or one level below an operating
segment. We have consistently determined the fair value of our
reporting units using a discounted cash flow analysis of our projected future
results. The use of discounted projected future results is based on
assumptions that are consistent with our estimates of future growth and the
strategic plan used to manage the underlying business. Factors
requiring significant judgment include assumptions related to future growth
rates, discount factors and tax rates, among others. Changes in economic and
operating conditions that occur after the annual impairment analysis or an
interim impairment analysis that impact these assumptions may result in future
impairment charges.

We completed our annual impairment test
during our fourth quarter of fiscal 2008 and we performed an interim impairment
test at the end of our first quarter of fiscal 2009. We determined
that no impairment existed as of either time period. However, based
upon the continued deterioration of the global economy and continued softening
of demand for our products driven by the global economic recession, we concluded
that sufficient indicators existed to perform an interim impairment analysis at
March 31, 2009 for one of our reporting units that has a $5,000 carrying value
of goodwill. Our impairment analysis at March 31, 2009 included
revised estimates of future revenue and income projections. These
projections are based on management’s view of market and economic data that
we use to create future scenarios. Management combines this data with
estimates of our mix of products sold, production costs and the level at which
we use our manufacturing capacity. We discounted the resulting
projected cash flows over a range of discount rates between 11% and 15%, using
discount rates comprised of the published cost of capital for our peer
companies. We determined our goodwill and intangible assets with
indefinite lives were not impaired as of March 31, 2009.

Due to the ongoing uncertainty in
market and economic conditions, which may continue to negatively impact the
Company’s operating results and overall market value, management will continue
to monitor and evaluate the carrying value of goodwill and intangible assets
with indefinite lives. If market and economic conditions deteriorate
further and cost-cutting measures do not improve the profitability, and our
estimates of future operating results are not met, we may have to reassess the
impairment of goodwill prior to the fourth quarter of fiscal 2009. A
10% decline in our cash flow projections would have resulted in the calculated
fair value of one of our reporting units being less than its carrying value
under our projection of a slow economic recovery. This would require
us to complete additional goodwill impairment testing as defined in SFAS
142.

10

CABOT
MICROELECTRONICS CORPORATION

NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited
and in thousands, except share and per share amounts)

The
components of other intangible assets are as follows:

March 31, 2009

September 30, 2008

Gross
Carrying

Accumulated

Gross
Carrying

Accumulated

Amount

Amortization

Amount

Amortization

Other intangible assets subject to
amortization:

Product
technology

$

7,978

$

1,510

$

5,380

$

1,210

Acquired
patents and licenses

8,000

5,675

8,000

4,716

Trade
secrets and know-how

2,550

2,550

2,550

2,550

Distribution
rights, customer lists and other

10,727

1,486

1,457

1,389

Total
other intangible assets subject to amortization

29,255

11,221

17,387

9,865

Total
other intangible assets not subject to amortization*

1,190

1,190

Total
other intangible assets

$

30,445

$

11,221

$

18,577

$

9,865

* Total
other intangible assets not subject to amortization primarily consist of trade
names.

Changes in the amounts recorded as
other intangible assets included $11,510 of intangible assets added as a result
of our acquisition of Epoch and an increase of $358 due to foreign currency
fluctuation of the Taiwan dollar. We acquired $2,520 in product
technology assets with an average useful life of seven years and we acquired
$8,990 of customer lists and other intangible assets with a weighted average
useful life of approximately nine years. We also purchased $1,500 of
IPR&D related to one project. The amount allocated to IPR&D
was determined through established valuation techniques and was expensed upon
acquisition because technological feasibility had not yet been established and
no alternative future uses exist.

Amortization expense on our other
intangible assets was $661 and $1,339 for the three and six months ended March
31, 2009, respectively. Amortization expense was $720 and $1,440 for
the three and six months ended March 31, 2008,
respectively. Estimated future amortization expense for the five
succeeding fiscal years is as follows:

Fiscal Year

Estimated
Amortization Expense

Remainder
of 2009

$1,148

2010

2,297

2011

2,290

2012

2,290

2013

2,290

Intangible assets with finite lives are
reviewed for impairment in accordance with SFAS No. 144, “Accounting for the
Impairment or Disposal of Long-Lived Assets”. As a result of the
impairment indicators described above, we tested our intangible assets with
finite lives for impairment during our fiscal quarter ended March 31, 2009 and
determined there was no impairment.

11

CABOT
MICROELECTRONICS CORPORATION

NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited
and in thousands, except share and per share amounts)

6.
OTHER LONG-TERM ASSETS

Other long-term assets consisted of the
following:

March
31,

September
30,

2009

2008

Long-term
investments

$

8,116

$

3,216

Long-term
restricted cash

6,600

-

Other
long-term assets

930

827

Total

$

15,646

$

4,043

As discussed in Note 3 of this Form
10-Q, our two ARS that we owned as of March 31, 2009 are classified as long-term
assets. The securities are credit enhanced with bond insurance to a
AAA credit rating and all interest payments continue to be received on a timely
basis. Although we believe these securities will ultimately be
collected in full, we believe that it is not likely that we will be able to
monetize the securities in our next business cycle (which for us is generally
one year). One of these securities with a fair value and par value of
$4,950 had been classified as a short-term investment at September 30,
2008. Since the auctions on this security have continued to fail for
more than one year, we reclassified the $4,950 to other long-term assets on our
Consolidated Balance Sheet during the quarter ended March 31,
2009. We maintained a $234 pretax reduction ($151 net of tax) in fair
value on the other ARS, which is consistent with the fair value reduction as of
September 30, 2008. We continue to believe this decline in fair value
is temporary based on the nature of the underlying debt, the presence of
AAA-rated bond insurance, our expectation that the issuer may refinance its
debt, the fact that all interest payments have been received, and our intention
and ability to hold the security until the value recovers, which may be at
maturity, given our current cash position, our expected future cash flow, and
our unused debt capacity.

As discussed in Note 2 of this Form
10-Q, we completed the acquisition of Epoch during the quarter ended March 31,
2009. The terms of this acquisition required us to place $6,600 in an
escrow account representing the cash we expect to pay to Eternal in August 2010
for the remaining 10% ownership interest in Epoch. This cash in
escrow is recorded as long-term restricted cash in Other Long-Term Assets on our
Consolidated Balance Sheet as of March 31, 2009.

7.
ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES

Accrued expenses and other current
liabilities consisted of the following:

March
31,

September
30,

2009

2008

Accrued
compensation

$

6,097

$

16,206

Goods
and services received, not yet invoiced

1,330

2,060

Warranty
accrual

177

863

Taxes,
other than income taxes

1,223

998

Other

3,708

2,660

Total

$

12,535

$

22,787

The decrease in accrued compensation
resulted primarily from the payment of our annual bonus related to fiscal year
ended September 30, 2008.

12

CABOT
MICROELECTRONICS CORPORATION

NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited
and in thousands, except share and per share amounts)

8.
DERIVATIVE FINANCIAL INSTRUMENTS

On January 1, 2009, we adopted the
provisions of SFAS No. 161, “Disclosures about Derivative Instruments and
Hedging Activities” (SFAS 161), which requires enhanced disclosures about an
entity’s derivatives and hedging activities. We are required to
provide enhanced disclosures about (a) how and why derivative instruments are
used, (b) how derivative instruments and related hedged items are accounted for
under SFAS No. 133, “Accounting for Derivative Instruments and Hedging
Activities” (SFAS 133) and related interpretations, and (c) how derivative
instruments and related hedged items affect our financial position, financial
performance and cash flows.

Periodically we enter into forward
foreign exchange contracts in an effort to mitigate the risks associated with
currency fluctuations on certain foreign currency balance sheet
exposures. Our foreign exchange contracts do not qualify for hedge
accounting under SFAS No. 133, as amended by SFAS No. 149, “Amendment of
Statement 133 on Instruments and Hedging Activities”, and SFAS No. 52, “Foreign
Currency Translation” (SFAS 52); therefore, the gains and losses resulting from
the impact of currency exchange rate movements on our forward foreign exchange
contracts are recognized as other income or expense in the accompanying
consolidated income statements in the period in which the exchange rates
change. We do not use derivative financial instruments for trading or
speculative purposes. In addition, all derivatives, whether
designated in hedging relationships or not, are required to be recorded on the
balance sheet at fair value. At March 31, 2009, we had one forward
foreign exchange contract selling Japanese Yen related to an intercompany note
with one of our subsidiaries in Japan and for the purpose of hedging the risk
associated with a net transactional exposure in Japanese Yen.

The fair value of our derivative
instrument included in the Consolidated Balance Sheet was as
follows:

Asset Derivatives

Liability Derivatives

Balance
Sheet Location

Fair
Value at

March
31, 2009

Fair
Value at

September
30, 2008

Fair
Value at

March
31, 2009

Fair
Value at

September
30, 2008

Derivatives
not designated as hedging instruments under SFAS 133

Foreign
exchange contracts

Prepaid
expenses and other current assets

$803

$26

$-

$-

The following table summarizes the
effect of our derivative instrument on our Consolidated Statement of Income
(Loss) for the three and six months ended March 31:

Gain (Loss) Recognized in Statement of Income
(Loss)

Three Months Ended

Six Months Ended

Statement
of Income (Loss) Location

March
31, 2009

March
31, 2008

March
31, 2009

March
31, 2008

Derivatives
not designated as hedging instruments under SFAS 133

Foreign
exchange contracts

Other
income, net

$3,143

$(3,757)

$(2,006)

$(4,063)

13

CABOT
MICROELECTRONICS CORPORATION

NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited
and in thousands, except share and per share amounts)

9.
CONTINGENCIES

While we are not involved in any legal
proceedings that we believe will have a material impact on our consolidated
financial position, results of operations or cash flows, we periodically become
a party to legal proceedings in the ordinary course of business. For
example, in January 2007, we filed a legal action against DuPont Air Products
NanoMaterials LLC (DA Nano), a CMP slurry competitor, in the United States
District Court for the District of Arizona, charging that DA Nano’s
manufacturing and marketing of CMP slurries infringe five CMP slurry patents
that we own. The affected DA Nano products include certain products
used for tungsten CMP. We filed our infringement complaint as a
counterclaim in response to an action filed by DA Nano in the same court in
December 2006 that seeks declaratory relief and alleges non-infringement,
invalidity and unenforceability regarding some of the patents at issue in our
complaint against DA Nano. DA Nano filed its complaint following our
refusal of its request that we license to it our patents raised in its
complaint. DA Nano’s complaint does not allege any infringement by
our products of intellectual property owned by DA Nano. On July 25,
2008, the District Court issued its patent claim construction, or “Markman”
Order (“Markman Order”) in the litigation. In a Markman ruling, a
district court hearing a patent infringement case interprets and rules on the
scope and meaning of disputed patent claim language regarding the patents in
suit. We believe that a Markman decision is often a significant
factor in the progress and outcome of patent infringement
litigation. In the Markman Order, the District Court adopted
interpretations that we believe are favorable to Cabot Microelectronics on all
claim terms that were in dispute in the litigation. On January 27,
2009, we filed a motion for summary judgment on DA Nano’s infringement of
certain of the patents at issue in the suit, because we believe the evidence
demonstrates that there is no dispute of material fact as to DA Nano’s
infringement of all of these patents with DA Nano’s accused products used for
tungsten CMP. On the same date, DA Nano filed a motion for summary
judgment on non-infringement and invalidity of certain of the patents at issue
in the suit. Although no trial date has been set, prior to the
parties’ filing of their respective summary judgment motions, we had expected
trial in this matter to occur sometime during calendar 2009. However,
the existence of the respective motions for summary judgment is expected to
cause a later trial date. While the outcome of this and any legal matter cannot
be predicted with certainty, we believe that our claims and defenses in the
pending action are meritorious, and we intend to pursue and defend them
vigorously.

Refer to Note 16 of “Notes to the
Consolidated Financial Statements” in Item 8 of Part II of our annual report on
Form 10-K for the fiscal year ended September 30, 2008, for additional
information regarding commitments and contingencies.

PRODUCT
WARRANTIES

We maintain a warranty reserve that
reflects management’s best estimate of the cost to replace product that does not
meet customers’ specifications and performance requirements, and costs related
to such replacement. The warranty reserve is based upon a historical
product replacement rate, adjusted for any specific known conditions or
circumstances. Additions and deductions to the warranty reserve are
recorded in cost of goods sold. Our warranty reserve requirements
changed during the first six months of fiscal 2009 as follows:

Balance
as of September 30, 2008

$

863

Reserve
for product warranty during the reporting period

397

Adjustments
to pre-existing warranty reserve

(648

)

Settlement
of warranty

(435

)

Balance
as of March 31, 2009

$

177

14

CABOT
MICROELECTRONICS CORPORATION

NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited
and in thousands, except share and per share amounts)

10. SHARE-BASED COMPENSATION
PLANS

We record share-based compensation
expense under the provisions of Statement of Financial Accounting Standards No.
123 (revised 2004), “Share-Based Payment” (SFAS 123R) using the straight-line
approach. We currently issue share-based payments under the following
programs: our Second Amended and Restated Cabot Microelectronics Corporation
2000 Equity Incentive Plan, as amended and restated September 26, 2006 (“2000
Equity Incentive Plan”); our Cabot Microelectronics Corporation Employee Stock
Purchase Plan (ESPP), which was amended to become the Cabot Microelectronics
Corporation 2007 Employee Stock Purchase Plan and approved by our shareholders
on March 4, 2008; and, pursuant to our 2000 Equity Incentive Plan, our
Directors’ Deferred Compensation Plan, as amended September 26, 2006 and our
2001 Executive Officer Deposit Share Program. For additional
information regarding these programs, refer to Note 11 of “Notes to the
Consolidated Financial Statements” included in Item 8 of Part II of our annual
report on Form 10-K for the fiscal year ended September 30, 2008. In
conjunction with certain cost reduction initiatives we implemented in the second
quarter of fiscal 2009, the ESPP has been amended to suspend the 15% discount
from the fair market value of our stock that employees previously received on
their ESPP purchases. Pursuant to the amended ESPP, effective with
the six-month period beginning January 1, 2009, the ESPP shares are now
purchased at a price equal to the lower of the closing price at the beginning or
end of each semi-annual offering period.

We record share-based compensation
expense for all of our share-based awards including stock options, restricted
stock, restricted stock units and employee stock purchases. We use
the Black-Scholes model to estimate the grant date fair value of our stock
options and employee stock purchases. This model requires the input
of highly subjective assumptions, including the price volatility of the
underlying stock and the expected term of our stock options. We
estimate the expected volatility of our stock based on a combination of our
stock’s historical volatility and the implied volatilities from actively-traded
options on our stock. We calculate the expected term of our stock
options using the simplified method as discussed in Topic 14 of the Staff
Accounting Bulletin Series, “Share-Based Payment”, due to our limited amount of
historical option exercise data, and we add a slight premium to this expected
term for employees who meet the definition of retirement pursuant to their
grants during the contractual term. The fair value of our restricted
stock and restricted stock unit awards represents the closing price of our
common stock on the date of grant. Share-based compensation expense
related to stock option grants, restricted stock and restricted stock unit
awards is recorded net of expected forfeitures. Our estimated
forfeiture rate is primarily based on historical experience, but may be revised
in future periods if actual forfeitures differ from the estimate.

Share-based compensation expense under
SFAS 123R for the three and six months ended March 31, 2009, and 2008, was as
follows:

Three
Months Ended

Six
Months Ended

March
31,

March
31,

2009

2008

2009

2008

Cost
of goods sold

$

207

$

276

$

553

$

525

Research,
development and technical

234

301

622

602

Selling
and marketing

275

381

694

733

General
and administrative

2,180

2,987

5,261

5,579

Total
share-based compensation expense

2,896

3,945

7,130

7,439

Tax
benefit

1,034

1,406

2,547

2,650

Total
share-based compensation expense, net of tax

$

1,862

$

2,539

$

4,583

$

4,789

For additional information regarding
the estimation of fair value, refer to Note 11 of “Notes to the Consolidated
Financial Statements” included in Item 8 of Part II of our annual report on Form
10-K for the fiscal year ended September 30, 2008.

15

CABOT
MICROELECTRONICS CORPORATION

NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited
and in thousands, except share and per share amounts)

11.
OTHER INCOME, NET

Other income, net, consisted of the
following:

Three
Months Ended

Six
Months Ended

March
31,

March
31,

2009

2008

2009

2008

Interest
income

$

156

$

1,575

$

890

$

3,517

Interest
expense

(79

)

(101

)

(180

)

(206

)

Other
income (expense)

400

215

643

13

Total
other income, net

$

477

$

1,689

$

1,353

$

3,324

The decrease in interest income during
the three and six months ended March 31, 2009 was primarily due to lower
interest rates earned on our cash and short-term investments compared to the
same periods in fiscal 2008.

12.
COMPREHENSIVE INCOME (LOSS)

The
components of comprehensive income (loss) were as
follows:

Three
Months Ended

Six
Months Ended

March
31,

March
31,

2009

2008

2009

2008

Net
income (loss)

$

(10,113

)

$

7,942

$

(9,997

)

$

20,141

Other
comprehensive income:

Net
unrealized gain on derivative instruments

8

9

17

18

Foreign
currency translation adjustment

(1,544

)

4,024

3,897

5,362

Unrealized
loss on investments

-

(335

)

-

(335

)

Minimum
pension liability adjustment

26

5

27

9

Total
comprehensive income (loss)

$

(11,623

)

$

11,645

$

(6,056

)

$

25,195

The foreign currency translation
adjustments during the three and six months ended March 31, 2009 and 2008
resulted primarily from the changes in the translation rates of the U.S. dollar
relative to the Japanese Yen.

16

CABOT
MICROELECTRONICS CORPORATION

NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited
and in thousands, except share and per share amounts)

13.
INCOME TAXES

Our effective income tax benefit rate
was 39.7% and 39.8% for the three and six months ended March 31, 2009,
respectively, compared to an effective income tax rate of 32.5% and 32.0% for
the three and six months ended March 31, 2008, respectively. The
change in the effective tax rate was primarily due to the decrease in taxable
income, which resulted in the Company being in a net loss position as of March
31, 2009, and the reinstatement of the research and experimentation tax credit
in the fourth quarter of fiscal 2008, partially offset by a decrease in
tax-exempt interest income.

There were no material changes to our
liability for uncertain tax positions, as defined by Financial Interpretation
No. 48, or for tax periods open to examination during the three and six months
ended March 31, 2009.

14.
EARNINGS (LOSS) PER SHARE

SFAS No. 128, “Earnings per Share”,
requires companies to provide a reconciliation of the numerator and denominator
of the basic and diluted earnings per share computations. Basic and
diluted earnings per share were calculated as follows:

Three
Months Ended

Six
Months Ended

March
31,

March
31,

2009

2008

2009

2008

Numerator:

Earnings
(loss) available to common shares

$

(10,113

)

$

7,942

$

(9,997

)

$

20,141

Denominator:

Weighted
average common shares

23,107,010

23,402,427

23,052,782

23,554,970

(Denominator
for basic calculation)

Weighted
average effect of dilutive securities:

Share-based
compensation

-

14,063

-

31,774

Diluted
weighted average common shares

23,107,010

23,416,490

23,052,782

23,586,744

(Denominator
for diluted calculation)

Earnings
(loss) per share:

Basic

$

(0.44

)

$

0.34

$

(0.43

)

$

0.86

Diluted

$

(0.44

)

$

0.34

$

(0.43

)

$

0.85

For the three months ended March 31,
2009 and 2008, approximately 4.0 million and 3.2 million shares, respectively,
attributable to outstanding stock options were excluded from the calculation of
diluted earnings per share because the exercise price of the options was greater
than the average market price of our common stock and, therefore, their
inclusion would have been anti-dilutive.

For the six months ended March 31, 2009
and 2008, approximately 4.0 million and 3.1 million shares, respectively,
attributable to outstanding stock options were excluded from the calculation of
diluted earnings per share because the exercise price of the options was greater
than the average market price of our common stock and, therefore, their
inclusion would have been anti-dilutive.

17

CABOT
MICROELECTRONICS CORPORATION

NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited
and in thousands, except share and per share amounts)

15.
NEW ACCOUNTING PRONOUNCEMENTS

In December 2007, the FASB issued SFAS
No. 141 (revised 2007), “Business Combinations” (SFAS 141R), which replaces SFAS
No. 141. The statement retains the purchase method of accounting for
acquisitions, but requires a number of changes, including changes in the way
assets and liabilities are recognized in purchase accounting. It also
changes the recognition of assets acquired and liabilities assumed arising from
contingencies, requires the capitalization of in-process research and
development at fair value, and requires acquisition-related costs to be charged
to expense as incurred. SFAS 141R is effective for us October 1, 2009
and will apply prospectively to business combinations completed on or after that
date.

In December 2007, the FASB issued SFAS
No. 160, “Noncontrolling Interest in Consolidated Financial Statements, an
Amendment of ARB 51” (SFAS 160), which changes the accounting and reporting for
minority equity interests in subsidiaries. Minority interests will be
recharacterized as noncontrolling interests and will be reported as a component
of equity separate from the parent’s equity, and purchases or sales of equity
interests that do not result in a change of control will be accounted for as
equity transactions. In addition, net income attributable to the
noncontrolling interest will be included in consolidated net income on the face
of the statement of operations and, upon loss of control, the interest sold, as
well as any interest retained, will be recorded at fair value with any gain or
loss recognized in earnings. SFAS 160 is effective for us beginning
October 1, 2009 and will apply prospectively, except for the presentation and
disclosure requirements, which will apply retrospectively. We are
currently assessing the potential impact that the adoption of this pronouncement
would have on our results of operations, financial position or cash
flows. Currently, there are no interests in any of our subsidiaries
that are treated as minority interests for accounting purposes. In
conjunction with our acquisition of Epoch from Eternal, Eternal will continue to
hold the remaining 10% ownership interest in Epoch until August
2010. However, Eternal has waived rights to any interest in the
earnings of Epoch during the interim period, including any associated dividends,
so Eternal’s retained ownership is not accounted for as a minority
interest.

In March 2008, the FASB issued SFAS No.
162, “The Hierarchy of Generally Accepted Accounting Principles” (SFAS 162),
which identifies a consistent framework, or hierarchy, for selecting accounting
principles to be used in preparing financial statements that are presented in
conformity with U.S. generally accepted accounting principles for
nongovernmental entities (the “Hierarchy”). The Hierarchy within SFAS
162 is consistent with that previously defined in the AICPA Statement on
Auditing Standards No. 69, “The Meaning of Present Fairly in Conformity With
Generally Accepted Accounting Principles”. SFAS 162 is effective 60
days following the SEC’s approval of the Public Company Accounting Oversight
Board amendments to U. S. Auditing Standards Section 411, “The Meaning of
Present Fairly in Conformity With Generally Accepted Accounting
Principles”. We do not believe the adoption of this pronouncement
will have a material impact on our results of operations, financial position or
cash flows.

In April 2009, the FASB issued FSP FAS
115-2 and FAS 124-2, “Recognition and Presentation of Other-Than-Temporary
Impairments” (FSP 115-2), which amends the other-than-temporary impairment
guidance in U.S. GAAP for debt securities and improves the presentation and
disclosure of other-than-temporary impairments on debt and equity securities in
the financial statements. A debt security is considered to be
impaired when the fair value of a debt security is less than its amortized cost
at the balance sheet date. Under the guidance of FSP 115-2, an
impairment is other-than-temporary when an entity intends to sell a debt
security that is impaired, when it is more likely than not that an entity will
be required to sell the security before the recovery of its amortized cost
basis, or when the present value of the expected cash flows from the security is
less than the amortized cost basis of the security. FSP 115-2 is
effective for us beginning April 1, 2009. We do not believe the
adoption of this pronouncement will have a material impact on our results of
operations, financial position or cash flows.

18

CABOT
MICROELECTRONICS CORPORATION

NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited
and in thousands, except share and per share amounts)

In April 2009, the FASB issued FSP FAS
107-1 and APB 28-1, “Interim Disclosures About Fair Value of Financial
Instruments” (FSP 107-1), which amends SFAS No. 107, “Disclosures About Fair
Value of Financial Instruments”, to require disclosures about fair value of
financial instruments in interim reporting periods as well as in annual
financial statements. FSP 107-1 also amends APB Opinion No. 28,
“Interim Financial Reporting”, to require fair value disclosures in summarized
financial information at interim periods. FSP 107-1 is effective for
us beginning April 1, 2009. FSP 107-1 does not require disclosures
for earlier periods presented for comparative purposes at initial adoption, but
does require comparative disclosures for periods ending after initial
adoption. We do not believe the adoption of this pronouncement will
have a material impact on our financial disclosures.

In April 2009, the FASB issued FSP FAS
157-4, “Determining Fair Value When the Volume and Level of Activity for the
Asset or Liability Have Significantly Decreased and Identifying Transactions
That Are Not Orderly” (FSP 157-4), which provides additional guidance for
estimating fair value in accordance with SFAS 157 when market activity has
significantly decreased and when transactions in a market may be
distressed. FSP 157-4 is effective for us beginning April 1,
2009. We do not believe the adoption of this pronouncement will have
a material impact on our results of operations, financial position or cash
flows.

19

ITEM
2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS

The following "Management's Discussion
and Analysis of Financial Condition and Results of Operations", as well as
disclosures included elsewhere in this Form 10-Q, include "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995. This Act provides a safe harbor for forward-looking
statements to encourage companies to provide prospective information about
themselves so long as they identify these statements as forward-looking and
provide meaningful cautionary statements identifying important factors that
could cause actual results to differ from the projected results. All
statements other than statements of historical fact we make in this Form 10-Q
are forward-looking. In particular, the statements herein regarding
future sales and operating results; Company and industry growth, contraction or
trends; growth or contraction of the markets in which the Company participates;
international events or various economic factors; product performance; the
generation, protection and acquisition of intellectual property, and litigation
related to such intellectual property; new product introductions; development of
new products, technologies and markets; the acquisition of or investment in
other entities; uses and investment of the Company’s cash balance; the
construction of facilities by the Company; and statements preceded by, followed
by or that include the words "intends", "estimates", "plans", "believes",
"expects", "anticipates", "should", "could" or similar expressions, are
forward-looking statements. Forward-looking statements reflect our
current expectations and are inherently uncertain. Our actual results
may differ significantly from our expectations. We assume no
obligation to update this forward-looking information. The section entitled
"Risk Factors" describes some, but not all, of the factors that could cause
these differences.

This section, "Management's Discussion
and Analysis of Financial Condition and Results of Operations”, should be read
in conjunction with Cabot Microelectronics’ annual report on Form 10-K for the
fiscal year ended September 30, 2008, including the consolidated financial
statements and related notes thereto.

SECOND
QUARTER OF FISCAL 2009 OVERVIEW

We continued to see the adverse effects
of the ongoing global recession during the second quarter of fiscal
2009. Based on several semiconductor industry reports, it appears
that semiconductor manufacturers decreased their production to reduce excess
inventories of semiconductor devices in response to a global decline in demand
for electronic goods. This, in turn, has caused an unprecedented
reduction in the demand for our CMP consumable products. We believe
our financial results for the second quarter of fiscal 2009 reflect the
continued soft demand for our products driven by the global economic downturn.
We also believe the decline in our revenue generally was consistent with the
decrease in overall semiconductor industry demand. Since the primary
driver of revenue for our CMP consumable products is wafer starts, the decreased
production by our customers has adversely affected us, and will continue to
adversely affect us until the semiconductor industry
recovers. However, we experienced a recent upturn in the demand for
our products in March as demand for our products increased significantly from
the levels we experienced in January and February. There are many
factors that make it difficult for us to predict future revenue trends for our
business, including: the duration of the global economic downturn; the cyclical
nature of the semiconductor industry; potential future acquisitions by us; the
short order to delivery time for our products and the associated lack of
visibility to future customer orders; and quarter to quarter changes in customer
orders regardless of industry strength.

Revenue for our second quarter of
fiscal 2009 was $45.4 million, which represented a decrease of 52.0%, or $49.1
million, from the second quarter of fiscal 2008 and a decrease of 28.0%, or
$17.6 million, from the previous fiscal quarter. We believe the
significant decrease in revenue reflects the adverse impacts of the global
economic recession noted above, as well as a traditional seasonal weakness
experienced during the first quarter of the calendar year.

20

The unprecedented reduction in demand
for our products has had a significant adverse affect on our gross profit
margins as we experienced significant underutilization of our manufacturing
capacity as we decreased our production to match the decrease in demand for our
CMP consumable products. Gross profit expressed as a percentage of
revenue for our second quarter of fiscal 2009 was 28.0% and gross profit was
38.2% on a year-to-date basis. Gross profit decreased from both the
44.7% reported in the second quarter of fiscal 2008 and the 45.6% reported in
the previous fiscal quarter. Based on our fiscal year-to-date
performance, we no longer expect to achieve gross profit within what had been
our previous full year gross profit guidance range of 46% to 48% for fiscal
2009. We may continue to experience fluctuations in our quarterly
gross profit due to a number of factors, including the extent to which we
utilize our manufacturing capacity and fluctuations in our product
mix.

During the second quarter of fiscal
2009, we took actions to improve and optimize our operating effectiveness and
reduce our costs. For example, we shortened work schedules in our
global CMP consumables manufacturing operations, we implemented a modest work
force reduction and we also suspended certain employee
benefits. These initiatives were in addition to several cost saving
steps we took earlier in the fiscal year to reduce discretionary spending, such
as reduced annual, merit-based salary increases, travel expenses and the
implementation of a hiring freeze. While these cost reduction efforts
helped us to achieve cost savings across our business, they were more than
offset by the significant decline in demand for our products during the
quarter.

Operating expenses were $30.0 million
in our second quarter of fiscal 2009, compared to $32.2 million in the second
quarter of fiscal 2008 and $29.4 million in the previous fiscal
quarter. Operating expenses in the second quarter of fiscal 2009 were
adversely affected by $3.6 million of specific, pre-tax expenses including a
$1.5 million write-off of in-process research and development expenses related
our acquisition of Epoch, a $1.1 million impairment of certain research and
development equipment, and a $1.0 million increase in our reserve for bad debt
expense due to the impact of the global economic conditions on customer
collections. We currently expect operating expenses will be in the
range of $115 million to $120 million for full year fiscal 2009, including the
operating expenses of Epoch.

Diluted loss per share for our second
fiscal quarter was $0.44, a decrease from diluted earnings per share of $0.34
reported in the second quarter of fiscal 2008 and $0.01 per share reported in
the previous fiscal quarter as a result of the factors discussed
above.

We completed our acquisition of Epoch
Material Co., Ltd. (Epoch), a consolidated subsidiary of Eternal Chemical Co.,
Ltd. (Eternal). Epoch is a Taiwan-based company specializing in the
development, manufacture and sale of copper CMP slurries and CMP cleaning
solutions to the semiconductor industry, and color filter slurries to the liquid
crystal display (LCD) industry. Epoch has a strong presence in
Taiwan, which we believe is the largest geographic market for CMP consumables,
strong customer relationships in the Asia Pacific region, a significant fixed
asset base and strong technical capabilities. Now that the
acquisition has closed, we are working effectively to integrate our two
businesses and leverage the natural synergies. Under the share purchase
agreement, we paid $59.4 million on the closing date of February 27, 2009 to
obtain 90% of Epoch’s stock and we paid $0.7 million in transaction
costs. We expect to pay an additional $6.6 million to Eternal in
August 2010 to acquire the remaining 10% ownership interest. During
this interim period, Eternal will continue to hold the remaining 10% ownership
interest in Epoch. See Note 2 of the Notes to the Consolidated
Financial Statements for a complete discussion of the
acquisition.

We discuss our critical accounting
estimates and effects of recent accounting pronouncements in “Management’s
Discussion and Analysis of Financial Condition and Results of Operations”
included in Item 7 of Part II of our annual report on Form 10-K for the fiscal
year ended September 30, 2008. We believe there have been no material
changes in our critical accounting estimates during the first six months of
fiscal 2009 except for the following discussion of our allowance for doubtful
accounts and the discussion of goodwill and intangible assets. See
Note 3, Note 8 and Note 15 of the Notes to the Consolidated Financial Statements
for a discussion of new accounting pronouncements.

Our allowance for doubtful accounts is
based on historical collection experience, adjusted for any known conditions or
circumstances. The global economic recession has had adverse effects
on our ability to collect accounts receivable from some of our
customers. The recession has also caused two of our customers to file
for bankruptcy or insolvency. We recorded a $1.0 million increase in
our allowance for doubtful accounts during the quarter ended March 31, 2009 to
account for the increased uncertainty in customer collections. We
will continue to closely monitor the financial solvency of our customers and, if
the global economic recession continues, we may have to record additional
increases to our allowance for doubtful accounts.

In accordance with Statement of
Financial Accounting Standards No. 142, “Goodwill and Other Intangible Assets”
(SFAS 142), goodwill and indefinite lived intangible assets are tested for
impairment annually in the fourth fiscal quarter or more frequently if
indicators of potential impairment exist, using a fair-value-based
approach. The recoverability of goodwill and other intangible assets
with indefinite lives is measured at the reporting unit level, which is defined
as either an operating segment or one level below an operating
segment. We have consistently determined the fair value of our
reporting units using a discounted cash flow analysis of our projected future
results. The use of discounted projected future results is based on
assumptions that are consistent with our estimates of future growth and the
strategic plan used to manage the underlying business. Factors
requiring significant judgment include assumptions related to future growth
rates, discount factors and tax rates, among others. Changes in economic and
operating conditions that occur after the annual impairment analysis or an
interim impairment analysis that impact these assumptions may result in future
impairment charges.

We completed our annual impairment test
during our fourth quarter of fiscal 2008 and we performed an interim impairment
test at the end of our first quarter of fiscal 2009. We determined
that no impairment existed as of either time period. However, based
upon the continued deterioration of the global economy and continued softening
of demand for our products driven by the global economic recession, we concluded
that sufficient indicators existed to perform another interim impairment
analysis at March 31, 2009 for one of our reporting units that has a $5,000
carrying value of goodwill. Our impairment analysis at March 31, 2009
included revised estimates of future revenue and income
projections. These projections are based on management’s view of
market and economic data that we use to create future
scenarios. Management combines this market data with estimates of our
mix of products sold, production costs and the level at which we use our
manufacturing capacity. We discounted the resulting projected cash
flows over a range of discount rates between 11% and 15%, using discount rates
comprised of the published cost of capital for our peer companies. We
determined our goodwill and intangible assets with indefinite lives were not
impaired as of March 31, 2009.

Due to the ongoing uncertainty in
market and economic conditions, which may continue to negatively impact the
Company’s operating results and overall market value, management will continue
to monitor and evaluate the carrying value of goodwill and intangible assets
with indefinite lives. If market and economic conditions deteriorate
further and cost-cutting measures do not improve the profitability, and our
estimates of future operating results are not met, we may have to reassess the
impairment of goodwill prior to the fourth quarter of fiscal 2009. A
10% decline in our cash flow projections would have resulted in the calculated
fair value of one of our reporting units being less than its carrying value
under our projection of a slow economic recovery. This would require
us to complete additional goodwill impairment testing as defined in SFAS
142.

Intangible assets with finite lives are
reviewed for impairment in accordance with SFAS No. 144, “Accounting for the
Impairment or Disposal of Long-Lived Assets”. As a result of the
impairment indicators described above, we tested our intangible assets with
finite lives for impairment during our fiscal quarter ended March 31, 2009 and
determined there was no impairment.

22

RESULTS
OF OPERATIONS

THREE
MONTHS ENDED MARCH 31, 2009, VERSUS THREE MONTHS ENDED MARCH 31,
2008

REVENUE

Revenue was $45.4 million for the three
months ended March 31, 2009, which represented a 52.0%, or $49.1 million,
decrease from the three months ended March 31, 2008. Of this
decrease, $51.0 million was due to decreased sales volume driven by the
significant weakening of demand for our products due to the global economic
recession which has negatively impacted end user demand for IC devices, a
correction of excess semiconductor device inventories by semiconductor
manufacturers and seasonal industry weakness which normally occurs during the
first quarter of the calendar year. This decrease in demand was
partially offset by a $1.3 million benefit due to the effect of foreign exchange
rate changes. We have experienced a recent upturn in our business due
to significantly higher demand for our products in March from the low levels we
experienced in January and February 2009. However, it is uncertain
whether this upturn will continue.

COST
OF GOODS SOLD

Total cost of goods sold was $32.7
million for the three months ended March 31, 2009, which represented a decrease
of 37.4%, or $19.5 million, from the three months ended March 31,
2008. The decrease in cost of goods sold was primarily due to $28.2
million from decreased sales volume due to the global economic recession, $4.3
million in lower fixed manufacturing costs and $2.1 million in higher
manufacturing yields in our CMP slurry and pad production, partially offset by
an $8.9 million cost increase due to lower utilization of our manufacturing
capacity on the decreased level of sales, $4.2 million due to a higher-cost
product mix and $1.5 million in higher freight and packaging costs.

The significant decrease in demand for
our products due to the global economic recession has caused us to implement a
number of cost saving initiatives. We shortened work schedules in our
manufacturing operations on a global basis to more closely match production with
demand for our products while also maintaining the flexibility to increase or
decrease production levels in the future to meet customer demand for our
products. We have also taken a number of other cost reduction
measures including a reduction in annual, merit-based salary increases, a modest
work force reduction, a restriction on travel and the suspension of certain
employee benefits, among others. These actions are intended to
improve our operating effectiveness during the current economic
recession. We are prepared to further adjust our costs as needed if
the soft economic environment continues or worsens.

Fumed metal oxides, such as fumed
silica and fumed alumina, are significant raw materials that we use in many of
our CMP slurries. In an effort to mitigate our risk to rising raw
material costs and to increase supply assurance and quality performance
requirements, we have entered into multi-year supply agreements with a number of
suppliers. For more financial information about our supply contracts,
see “Tabular Disclosure of Contractual Obligations” in this filing as well as in
Item 7 of Part II of our annual report on Form 10-K for the fiscal year ended
September 30, 2008.

Our need for additional quantities or
different kinds of key raw materials in the future has required, and will
continue to require, that we enter into new supply arrangements with third
parties. Future arrangements may result in costs which are different
from those in the existing agreements. In addition, energy costs may
also impact the cost of raw materials, packaging, freight and labor
costs. We also expect to continue to invest in our operations
excellence initiative to improve product quality, reduce variability and improve
product yields in our manufacturing process.

23

GROSS
PROFIT

Our gross profit as a percentage of
revenue was 28.0% for the three months ended March 31, 2009, as compared to
44.7% for the three months ended March 31, 2008. The decrease was
primarily due to the unprecedented underutilization of our manufacturing
capacity on the significantly lower level of sales partially offset by lower
fixed manufacturing costs and favorable production yields. Although
current economic conditions make it difficult to predict full year results,
based on actual financial results achieved during the first half of our fiscal
year, we no longer expect to achieve gross profit within what had been our
previous gross profit guidance of 46% to 48% for full fiscal year
2009. We may continue to experience fluctuations in our quarterly
gross profit due to a number of factors, including the extent to which we
utilize our manufacturing capacity and fluctuations in our product
mix.

RESEARCH,
DEVELOPMENT AND TECHNICAL

Total research, development and
technical expenses were $12.6 million for the three months ended March 31, 2009,
which represented an increase of 1.5%, or $0.2 million, from the three months
ended March 31, 2008. The increase was primarily related to a $1.1
million pre-tax impairment recorded on certain research and development
equipment in accordance with SFAS No. 144, “Accounting for the Impairment or
Disposal of Long-Lived Assets”. This impairment was partially offset
by $0.5 million in lower staffing-related costs, $0.3 million in lower
depreciation and amortization, and $0.2 million in lower travel-related
costs. The cost reduction initiatives we instituted during the second
quarter of fiscal 2009 helped us achieve these cost savings.

Our research, development and technical
efforts are focused on the following main areas:

·

Research
related to fundamental CMP
technology;

·

Development
and formulation of new and enhanced CMP consumable
products;

·

Process
development to support rapid and effective commercialization of new
products;

·

Technical
support of CMP products in our customers’ manufacturing facilities;
and

·

Evaluation
of new polishing applications outside of the semiconductor
industry.

SELLING
AND MARKETING

Selling and marketing expenses were
$5.3 million for the three months ended March 31, 2009, which represented a
decrease of 23.8%, or $1.6 million, from the three months ended March 31,
2008. The decrease was primarily due to $0.5 million in lower
staffing-related costs, $0.4 million in lower professional fees, $0.4 million in
lower travel related costs, and $0.2 million in lower advertising and trade show
costs. Our cost reduction measures that we implemented in the second
quarter of fiscal 2009 helped us achieve these cost savings.

GENERAL
AND ADMINISTRATIVE

General and administrative expenses
were $10.6 million for the three months ended March 31, 2009, which represented
a decrease of 17.6%, or $2.3 million, from the three months ended March 31,
2008. The decrease
resulted primarily from $2.0 million in lower staffing-related costs, primarily
due to reduced expenses related to our annual bonus plan, and $1.2 million in
lower professional fees, including costs to enforce our intellectual
property. These cost savings were partially offset by a $1.0 million
increase in our reserve for bad debt expense due to the impact of adverse
economic conditions on customer collections, including customer
bankruptcies.

PURCHASED
IN-PROCESS RESEARCH AND DEVELOPMENT

Purchased in-process research and
development (IPR&D) expense was $1.5 million for the three months ended
March 31, 2009, resulting from the acquisition of Epoch.

24

OTHER
INCOME, NET

Other income was $0.5 million for the
three months ended March 31, 2009, compared to $1.7 million in the three months
ended March 31, 2008. The decrease in other income was primarily due
to $1.4 million lower interest income resulting from lower interest rates on our
balances of cash and short-term investments, partially offset by $0.2 million in
foreign exchange gains. We monetized the majority of our short-term
investments in auction rate securities (ARS) during fiscal 2008 and reinvested
these funds into money market investments which earn interest at lower
rates. See Note 3 of the Notes to the Consolidated Financial
Statements for more information on our ARS.

PROVISION
FOR INCOME TAXES

Our effective income tax benefit rate
of 39.7% for the three months ended March 31, 2009 compared to a 32.5% effective
income tax rate for the three months ended March 31, 2008. The change
in the effective tax rate was primarily due to the significant decrease in
taxable income, which resulted in the Company being in a net loss position as of
March 31, 2009, due to the significant decrease in demand discussed above, and
the reinstatement of the research and experimentation credit in the fourth
quarter of fiscal 2008, partially offset by a decrease in tax-exempt interest
income.

NET
INCOME (LOSS)

Net loss was $10.1 million for the
three months ended March 31, 2009 compared to net income of $7.9 million for the
three months ended March 31, 2008. As a result of the factors discussed
above, we incurred a significant net loss in the second quarter of fiscal
2009.

SIX
MONTHS ENDED MARCH 31, 2009, VERSUS SIX MONTHS ENDED MARCH 31, 2008

REVENUE

Revenue was $108.4 million for the six
months ended March 31, 2009, which represented a 42.3%, or $79.5 million,
decrease from the six months ended March 31, 2008. Of this decrease,
$87.1 million was due to decreased sales volume driven by the significant
weakening of demand for our products due to the global economic recession which
has negatively impacted end user demand for IC devices, as well as a correction
of excess semiconductor device inventories by semiconductor
manufacturers. This decrease in demand was partially offset by a $5.9
million benefit of a favorably priced product mix and a $2.4 million benefit due
to the effect of foreign exchange rate changes.

COST
OF GOODS SOLD

Total cost of goods sold was $67.0
million for the six months ended March 31, 2009, which represented a decrease of
33.5%, or $33.8 million, from the six months ended March 31, 2008. Of
this decrease, $46.8 million was due to decreased sales volume due to the global
economic recession, $5.0 million was due to lower fixed manufacturing costs and
$3.8 million was due to higher manufacturing yields in our CMP slurry and pad
production. These cost decreases were partially offset by a $12.7
million cost increase due to lower utilization of our manufacturing capacity on
the decreased level of sales and $8.0 million due to a higher-cost product
mix.

As discussed above, in response to the
significant decrease in demand for our products due to the global economic
recession, we implemented a number of cost reduction
initiatives. These actions are intended to improve our operating
effectiveness during the current economic recession. We are prepared
to further adjust our costs as needed if the soft economic environment continues
or worsens.

25

GROSS
PROFIT

Our gross profit as a percentage of
revenue was 38.2% for the six months ended March 31, 2009, compared to 46.3% for
the six months ended March 31, 2008. The decrease was primarily due
to the unprecedented underutilization of our manufacturing capacity on the
significantly lower level of sales, partially offset by lower fixed
manufacturing costs and favorable production yields. Although current
economic conditions make it difficult to predict full year results, based on
actual financial results achieved during the first half of our fiscal year, we
no longer expect to achieve gross profit within what had been our gross profit
guidance of 46% to 48% for full fiscal year 2009.

RESEARCH,
DEVELOPMENT AND TECHNICAL

Total research, development and
technical expenses were $24.7 million for the six months ended March 31, 2009,
which represented an increase of 3.7%, or $0.9 million, from the six months
ended March 31, 2008. The increase was primarily related to $1.2
million in pre-tax impairments recorded on certain research and development
equipment in accordance with SFAS No. 144, “Accounting for the Impairment or
Disposal of Long-Lived Assets”, including $1.1 million recorded in the second
quarter of fiscal 2009, and $0.4 million in higher laboratory
supplies. These increases were partially offset by $0.7 million in
lower staffing-related costs.

SELLING
AND MARKETING

Selling and marketing expenses were
$11.2 million for the six months ended March 31, 2009, which represented a
decrease of 14.8%, or $2.0 million, from the six months ended March 31,
2008. The decrease was primarily due to $0.8 million in lower
staffing-related costs, $0.3 million in lower travel-related costs, $0.2 million
in lower professional fees and $0.2 million in lower advertising and trade show
costs.

GENERAL
AND ADMINISTRATIVE

General and administrative expenses
were $21.9 million for the six months ended March 31, 2009, which represented a
decrease of 7.5%, or $1.8 million, from the six months ended March 31,
2008. The decrease
resulted primarily from $2.0 million in lower staffing-related costs, primarily
due to reduced expenses related to our annual bonus plan, and $0.9 million in
lower professional fees, including costs to enforce our intellectual
property. These cost savings were partially offset by a $1.0 million
increase in our reserve for bad debt expense due to the impact of adverse
economic conditions on customer collections, including customer bankruptcies,
which we recorded during our second quarter of fiscal 2009.

PURCHASED
IN-PROCESS RESEARCH AND DEVELOPMENT

Purchased in-process research and
development (IPR&D) expense was $1.5 million for the six months ended March
31, 2009, resulting from the acquisition of Epoch in the second quarter of
fiscal 2009.

26

OTHER
INCOME, NET

Other income was $1.4 million for the
six months ended March 31, 2009, compared to $3.3 million in the six months
ended March 31, 2008. The decrease in other income was primarily due
to $2.6 million lower interest income resulting from lower interest rates on our
balances of cash and short-term investments, partially offset by $0.6 million in
foreign exchange gains. We monetized the majority of our short-term
investments in auction rate securities (ARS) during fiscal 2008 and reinvested
these funds into money market investments which generally earn interest at lower
rates. See Note 3 of the Notes to the Consolidated Financial
Statements for more information on our ARS.

PROVISION
FOR INCOME TAXES

Our effective income tax benefit rate
of 39.8% for the six months ended March 31, 2009 compared to a 32.0% effective
tax rate for the three months ended March 31, 2008. The change in the
effective tax rate was primarily due to the significant decrease in taxable
income, which resulted in the Company being in a net loss position as of March
31, 2009, due to the significant decrease in demand discussed above, and the
reinstatement of the research and experimentation credit in the fourth quarter
of fiscal 2008, partially offset by a decrease in tax-exempt interest
income.

NET
INCOME (LOSS)

Net loss was $10.0 million for the six
months ended March 31, 2009 compared to net income of $20.1 million for the six
months ended March 31, 2008. As a result of the factors discussed above,
we incurred a significant net loss during the first six months of fiscal
2009.

LIQUIDITY
AND CAPITAL RESOURCES

We generated $1.6 million in cash flows
from operating activities in the first six months of fiscal 2009, compared to
$29.5 million in cash from operating activities in the first six months of
fiscal 2008. Our cash provided by operating activities in the first
six months of fiscal 2009 originated from $19.5 million in non-cash items
partially offset by a net loss of $10.0 million and a $7.9 million decrease in
cash flow due to a net increase in working capital. The decrease in
cash from operations compared to the first six months of fiscal 2008 was
primarily due to decreased net income in the period, the timing of accounts
payable and accrued liability payments, including the payment of our annual
bonus related to fiscal 2008, partially offset by decreased accounts receivable
balances on the decreased level of sales and a smaller increase in inventory
levels than we incurred in fiscal 2008.

In the first six months of fiscal 2009,
cash flows used in investing activities were $65.1 million representing $60.5
million used for our acquisition of Epoch, net of $6.2 million in cash acquired,
and $4.7 million in purchases of property, plant and equipment. In
the first six months of fiscal 2008, cash flows provided by investing activities
were $101.5 million. We had net sales of short-term investments of
$112.9 million as we liquidated a majority of our ARS during the quarter ended
March 31, 2008. This cash inflow was partially offset by $11.4
million in cash used for purchases of property, plant and equipment, primarily
for the purchase and installation of a 300-millimeter polishing tool and related
metrology equipment at our Asia Pacific technology center and building
improvements and equipment to enhance our pad production
capabilities. We estimate that our total capital expenditures in
fiscal 2009 will be approximately $10 million.

In the first six months of fiscal 2009,
cash flows provided by financing activities were $0.2 million, representing $1.0
million received from the issuance of common stock under our Second Amended and
Restated Cabot Microelectronics Corporation 2000 Equity Incentive Plan and Cabot
Microelectronics Corporation 2007 Employee Stock Purchase Plan, partially offset
by $0.6 million in principal payments on capital leases and $0.3 million in
repurchases of common stock pursuant to the terms of our Equity Incentive Plan
for shares withheld to cover payroll taxes on the vesting of restricted stock
granted under the Equity Incentive Plan. We did not repurchase any
shares under our share repurchase program during the first six months of fiscal
2009. In the first six months of fiscal 2008, cash flows used in
financing activities were $23.2 million, primarily as a result of $24.0 million
in repurchases of common stock under our share repurchase program. In
January 2008, our Board of Directors authorized a share repurchase program for
up to $75.0 million of our outstanding common stock. Share repurchases are made
from time-to time, depending on market conditions, at management’s
discretion. As of March 31, 2009, we have $50.0 million remaining on
this share repurchase program. We fund share purchases under this
program from our available cash balance. We view this program as a
flexible and effective means to return cash to stockholders.

27

We have an unsecured revolving credit
facility of $50.0 million with an option to increase the facility up to $80.0
million, which pursuant to an amendment we entered into in October 2008, extends
the agreement to November 2011, with an option to renew for two additional
one-year terms. Under this agreement, interest accrues on any outstanding
balance at either the lending institution’s base rate or the Eurodollar rate
plus an applicable margin. We also pay a non-use fee. This amendment
did not include any other material changes to the terms of the credit
agreement. Loans under this facility are intended primarily for
general corporate purposes, including financing working capital, capital
expenditures and acquisitions. The credit agreement also contains
various covenants. No amounts are currently outstanding under this
credit facility and we believe we are currently in compliance with the
covenants.

As discussed in Note 2 of the Notes to
the Consolidated Financial Statements in this Form 10-Q, we completed our
acquisition of Epoch during our second quarter of fiscal 2009. The total
cash outlay was $60.5 million representing $59.4 million in cash paid to
Epoch’s shareholders on the first closing date of February 27, 2009, $0.7
million in cash paid for transaction costs and $6.6 million held in an escrow
account to be paid to Eternal on the second closing date, in August 2010,
partially offset by $6.2 million in cash acquired from
Epoch.

Despite the ongoing capital and credit
market uncertainty, we believe that our current balance of cash and long-term
investments, cash generated by our operations and available borrowings under our
revolving credit facility will be sufficient to fund our operations, expected
capital expenditures, including merger and acquisition activities, and share
repurchases for the foreseeable future. However, as we plan to
further expand our business and continue to improve our technology, we may be
required to raise additional funds in the future through equity or debt
financing, strategic relationships or other arrangements. The current
uncertainty in the capital and credit markets may hinder the ability to generate
additional financing in the type or amount necessary to pursue such
objectives.

OFF-BALANCE
SHEET ARRANGEMENTS

At March 31, 2009, and September 30,
2008, we did not have any unconsolidated entities or financial partnerships,
such as entities often referred to as structured finance or special purpose
entities, which might have been established for the purpose of facilitating
off-balance sheet arrangements.

28

TABULAR
DISCLOSURE OF CONTRACTUAL OBLIGATIONS

The following summarizes our
contractual obligations at March 31, 2009, and the effect such obligations are
expected to have on our liquidity and cash flow in future periods.

CONTRACTUAL
OBLIGATIONS

Less
Than

1-3

3-5

After
5

(In
millions)

Total

1 Year

Years

Years

Years

Purchase
obligations

$

22.2

$

19.1

$

3.1

$

-

$

-

Acquisition
related

6.6

-

6.6

-

-

Capital
lease obligations

3.1

1.2

1.9

-

-

Operating
leases

1.9

1.2

0.7

-

-

Other
long-term liabilities

3.4

-

-

-

3.4

Total
contractual obligations

$

37.2

$

21.5

$

12.3

$

-

$

3.4

We operate under a fumed silica supply
agreement with Cabot Corporation under which we are generally obligated to
purchase at least 90% of our six-month volume forecast for certain of our slurry
products, to purchase certain non-material minimum quantities every six months,
and to pay for the shortfall if we purchase less than these
amounts. This agreement was amended in April 2008 to extend the
termination date to December 2012 and to change the pricing and some other
non-material terms of the agreement. The agreement will automatically
renew unless either party gives certain notice of non-renewal. We
currently anticipate we will not have to pay any shortfall under this
agreement. We also operate under a fumed alumina supply agreement
with Cabot Corporation that runs through December 2011, under which we are
obligated to pay certain fixed, capital and variable costs. Purchase
obligations include an aggregate amount of $6.5 million of contractual
commitments for fumed silica and fumed alumina under these
contracts.

As discussed in Note 2 of the Notes to
the Consolidated Financial Statements in this Form 10-Q, we completed our
acquisition of Epoch during our second quarter of fiscal 2009. We
expect to pay an additional $6.6 million to Eternal on the second closing date,
in August 2010, and we have placed the $6.6 million in an escrow account for
this purpose to be held until then. The escrow account is recorded as
long-term restricted cash at March 31, 2009 and is included with other long-term
assets on our Consolidated Balance Sheet. During this interim period,
Eternal will continue to hold the remaining 10% ownership interest in Epoch;
however, Eternal has waived rights to any interest in Epoch earnings during
the interim period, including any associated dividends. Consequently,
we have recorded a $6.6 million long-term liability on our Consolidated Balance
Sheet at March 31, 2009 rather than recording a minority interest in
Epoch.

Refer to Item 7
“Management’s Discussion and Analysis of Financial Condition and Results
of Operations” of
Part II of our annual report on Form 10-K for the fiscal year ended
September 30, 2008, for additional information regarding our contractual
obligations.

29

ITEM
3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK

EFFECT
OF CURRENCY EXCHANGE RATES AND EXCHANGE RATE RISK MANAGEMENT

We conduct business operations outside
of the United States through our foreign operations. Some of our
foreign operations maintain their accounting records in their local
currencies. Consequently, period to period comparability of results
of operations is affected by fluctuations in exchange rates. The
primary currencies to which we have exposure are the Japanese Yen and, to a
lesser extent, the Taiwan Dollar, British Pound and the Euro. From
time to time we enter into forward contracts in an effort to manage foreign
currency exchange exposure. However, we may be unable to hedge these
exposures completely. During the six months ended March 31, 2009, we
recorded $0.5 million in foreign currency translation gains that are included in
other income on our Consolidated Statement of Income. We also
recorded $3.9 million in currency translation gains, net of tax, that are
included in other comprehensive income on our Consolidated Balance
Sheet. These gains primarily are the result of general weakening of
the U.S. dollar relative to the Japanese Yen. Approximately 19% of
our revenue is transacted in currencies other than the U.S. dollar. We do not
currently enter into forward exchange contracts or other derivative instruments
for speculative or trading purposes.

We have performed a sensitivity
analysis assuming a hypothetical 10% adverse movement in foreign exchange
rates. As of March 31, 2009, the analysis demonstrated that such
market movements would not have a material adverse effect on our consolidated
financial position, results of operations or cash flows over a one-year
period. Actual gains and losses in the future may differ materially
from this analysis based on changes in the timing and amount of foreign currency
rate movements and our actual exposures.

MARKET
RISK RELATED TO INVESTMENTS IN AUCTION RATE SECURITIES

At March 31, 2009, we owned two auction
rate securities (ARS) with a total estimated fair value of $8.1 million ($8.3
million par value) which we classified as other long-term assets on our
Consolidated Balance Sheet. Previously, one of our ARS with a fair
value and par value of approximately $5.0 million was classified as a short-term
investment. General uncertainties in the global credit markets caused
widespread ARS auction failures as the number of securities submitted for sale
exceeded the number of securities buyers were willing to purchase. As
a result, the short-term liquidity of the ARS market has been adversely
affected.

In the second quarter of fiscal 2009,
we maintained the $0.2 million pre-tax and net of tax reduction that we had
recorded in fiscal 2008 in stockholders’ equity in accumulated other
comprehensive income to reflect a decline in fair value of our ARS which we
believed was temporary. In the second quarter of fiscal 2009, we
successfully monetized at par value $0.1 million of one of our
ARS. However, we reclassified approximately $5.0 million of our other
ARS from short-term investments to other long-term assets as the auctions on
this security have continued to fail for more than one year. We
believe that we will be able to monetize the remaining two securities at par,
either through successful auctions, refinancing of the underlying debt by the
issuers, or holding the securities to maturity. However, if auctions
involving our ARS continue to fail, if issuers are unable to refinance the
underlying securities, if the issuing municipalities are unable to pay debt
obligations and the bond insurance fails, or if credit ratings decline or other
adverse developments occur in the credit markets, then we may not be able to
monetize these securities in the foreseeable future and we may also be required
to further adjust the carrying value of these instruments through an impairment
charge that may be deemed other-than-temporary. See Notes 3 and 6 of
the Notes to the Consolidated Financial Statements and the “Risk Factors” set
forth in Part II, Item 1A of this Quarterly Report on Form 10-Q for more
information.

30

ITEM
4. CONTROLS AND PROCEDURES

EVALUATION
OF DISCLOSURE CONTROLS AND PROCEDURES

Our management, with the participation
of our Chief Executive Officer and Chief Financial Officer, has conducted an
evaluation of the effectiveness of the design and operation of our disclosure
controls and procedures (as defined in Rule 13a-15(e) under the Securities
Exchange Act of 1934, as amended) as of the end of the period covered by this
report. Based on that evaluation, our Chief Executive Officer and
Chief Financial Officer have concluded that our disclosure controls and
procedures were effective as of March 31, 2009.

While we believe the present design of
our disclosure controls and procedures is effective enough to make known to our
senior management in a timely fashion all material information concerning our
business, we intend to continue to improve the design and effectiveness of our
disclosure controls and procedures to the extent we believe necessary in the
future to provide our senior management with timely access to such material
information, and to correct deficiencies that we may discover in the future, as
appropriate.

CHANGES
IN INTERNAL CONTROL OVER FINANCIAL REPORTING

There were no changes in our internal
control over financial reporting that occurred during our most recent fiscal
quarter that have materially affected, or are reasonably likely to materially
affect, our internal control over financial reporting.

INHERENT
LIMITATIONS ON EFFECTIVENESS OF CONTROLS

Because of inherent limitations, our
disclosure controls or our internal control over financial reporting may not
prevent all errors and all fraud. A control system, no matter how
well conceived and operated, can provide only reasonable, not absolute,
assurance that the objectives of the control system are met. Further,
the design of a control system must take into account the benefits of controls
relative to their costs. Because of the inherent limitations in all
control systems, no evaluation of controls can provide absolute assurance that
all control issues and instances of fraud, if any, within the Company have been
detected. These inherent limitations include possible faulty judgment
in decision making and breakdowns due to a simple error or
mistake. Additionally, controls can be circumvented by the individual
acts of some persons, by collusion of two or more people or by management
override of the controls. The design of any system of controls also
is based in part upon certain assumptions about the likelihood of future events,
and there can be no assurance that any design will succeed in achieving its
stated goals under all potential future conditions. Over time,
controls may become inadequate because of changes in conditions, or the degree
of compliance with policies or procedures may deteriorate. Because of
the inherent limitations in a cost-effective control system, misstatements due
to error or fraud may occur and not be detected.

31

PART
II. OTHER INFORMATION

ITEM
1. LEGAL PROCEEDINGS

While we are not involved in any legal
proceedings that we believe will have a material impact on our consolidated
financial position, results of operations or cash flows, we periodically become
a party to legal proceedings in the ordinary course of business. For
example, in January 2007, we filed a legal action against DuPont Air Products
NanoMaterials LLC (DA Nano), a CMP slurry competitor, in the United States
District Court for the District of Arizona, charging that DA Nano’s
manufacturing and marketing of CMP slurries infringe five CMP slurry patents
that we own. The affected DA Nano products include certain products
used for tungsten CMP. We filed our infringement complaint as a
counterclaim in response to an action filed by DA Nano in the same court in
December 2006 that seeks declaratory relief and alleges non-infringement,
invalidity and unenforceability regarding some of the patents at issue in our
complaint against DA Nano. DA Nano filed its complaint following our
refusal of its request that we license to it our patents raised in its
complaint. DA Nano’s complaint does not allege any infringement by
our products of intellectual property owned by DA Nano. On July 25,
2008, the District Court issued its patent claim construction, or “Markman”
Order (“Markman Order”) in the litigation. In a Markman ruling, a
district court hearing a patent infringement case interprets and rules on the
scope and meaning of disputed patent claim language regarding the patents in
suit. We believe that a Markman decision is often a significant
factor in the progress and outcome of patent infringement
litigation. In the Markman Order, the District Court adopted
interpretations that we believe are favorable to Cabot Microelectronics on all
claim terms that were in dispute in the litigation. On January 27,
2009, we filed a motion for summary judgment on DA Nano’s infringement of
certain of the patents at issue in the suit, because we believe the evidence
demonstrates that there is no dispute of material fact as to DA Nano’s
infringement of all of these patents with DA Nano’s accused products used for
tungsten CMP. On the same date, DA Nano filed a motion for summary
judgment on non-infringement and invalidity of certain of the patents at issue
in the suit. Although no trial date has been set, prior to the
parties’ filing of their respective motions of summary judgment, we had expected
trial in this matter to occur sometime during calendar 2009. However,
the existence of the respective summary judgment motions for summary judgment is
expected to cause a later trial date. While the outcome of this and
any legal matter cannot be predicted with certainty, we believe that our claims
and defenses in the pending action are meritorious, and we intend to pursue and
defend them vigorously.

ITEM
1A. RISK FACTORS

We do not believe there have been any
material changes in our risk factors since the filing of our Annual Report on
Form 10-K for the fiscal year ended September 30, 2008 other than the
description of risks related to worldwide economic and industry
conditions. However, we may update our risk factors in our SEC
filings from time to time for clarification purposes or to include additional
information, at management's discretion, even when there have been no material
changes.

RISKS
RELATING TO OUR BUSINESS

DEMAND
FOR OUR PRODUCTS FLUCTUATES AND OUR BUSINESS MAY BE ADVERSELY AFFECTED BY
WORLDWIDE ECONOMIC AND INDUSTRY CONDITIONS

Our business is affected by economic
and industry conditions and our revenue is dependent upon semiconductor
demand. Semiconductor demand, in turn, is impacted by semiconductor
industry cycles, and these cycles can dramatically affect our
business. These cycles may be characterized by decreases in product
demand, excess customer inventories, and accelerated erosion of
prices. The global economy is currently in recession and we first
began to see significant adverse effects of this in our fourth quarter of fiscal
2008 as the reduction in end user demand for IC devices caused semiconductor
manufacturers to reduce their production, which reduced the demand for our CMP
consumable products. We believe weakness of the U.S. and global
economy and stress in the financial markets have persisted, and this has caused
a significant decrease in demand for our products during the first six months of
fiscal 2009, as our revenue for that period decreased over 42% from the first
six months of fiscal 2008. If global economic conditions remain
uncertain or deteriorate further, we may experience additional material adverse
impacts on our results of operations and financial condition.

32

A prolonged global recession may have
other adverse effects on our Company such as:

·

The
ability of our customers to pay their obligations to us may be adversely
affected causing a negative impact on our cash flows and our results of
operations as evidenced by the bankruptcy filing of two of our smaller
customers in the second quarter of fiscal
2009.

·

The
carrying value of our goodwill and other intangible assets may decline in
value, which could harm our financial position and results of
operations.

·

Our
suppliers may not be able to fulfill their obligations to us, which could
harm our production process and our
business.

Some additional factors that affect
demand for our products include customers’ production of logic versus memory
devices, their transition from 200 mm to 300 mm wafers, customers’ specific
integration schemes, share gains and losses and pricing changes by us and our
competitors.

WE
HAVE A NARROW PRODUCT RANGE AND OUR PRODUCTS MAY BECOME OBSOLETE, OR
TECHNOLOGICAL CHANGES MAY REDUCE OR LIMIT INCREASES IN THE CONSUMPTION OF CMP
SLURRIES AND PADS

Our business is substantially dependent
on a single class of products, CMP slurries, which account for the majority of
our revenue. We are also developing our business in CMP pads. Our
business would suffer if these products became obsolete or if consumption of
these products decreased. Our success depends on our ability to keep
pace with technological changes and advances in the semiconductor industry and
to adapt, improve and customize our products for advanced IC applications in
response to evolving customer needs and industry trends. Since its
inception, the semiconductor industry has experienced rapid technological
changes and advances in the design, manufacture, performance and application of
IC devices, and our customers continually pursue lower cost of ownership of
materials consumed in their manufacturing processes, including CMP slurries and
pads. We expect these technological changes and advances, and this
drive toward lower costs, will continue in the future. Potential
technology developments in the semiconductor industry, as well as our customers’
efforts to reduce consumption of CMP slurries and pads, could render our
products less important to the IC device manufacturing process.

A
SIGNIFICANT AMOUNT OF OUR BUSINESS COMES FROM A LIMITED NUMBER OF LARGE
CUSTOMERS AND OUR REVENUE AND PROFITS COULD DECREASE SIGNIFICANTLY IF WE LOST
ONE OR MORE OF THESE CUSTOMERS

Our customer base is concentrated among
a limited number of large customers. One or more of these principal
customers could stop buying CMP consumables from us or could substantially
reduce the quantity of CMP consumables they purchase from us. Our
principal customers also hold considerable purchasing power, which can impact
the pricing and terms of sale of our products. Any deferral or significant
reduction in CMP consumables sold to these principal customers, or a significant
number of smaller customers, could seriously harm our business, financial
condition and results of operations.

In fiscal 2008, our five largest
customers accounted for approximately 44% of our revenue; with Taiwan
Semiconductor Manufacturing Company (TSMC) accounting for approximately 17% of
our revenue. During the six months ended March 31, 2009 and 2008, our
five largest customers accounted for approximately 37% and 43% of our revenue;
respectively. TSMC was our largest customer during each of these
periods, accounting for approximately 15% and 17% of our revenue for the six
months ended March 31, 2009 and 2008, respectively.

Competition from other CMP slurry
manufacturers could seriously harm our business and results of
operations. Competition from other providers of CMP slurries could
continue to increase, and opportunities exist for other companies to emerge as
potential competitors by developing their own CMP slurry
products. Increased competition has and may continue to impact the
prices we are able to charge for our slurry products as well as our overall
business. In addition, our competitors could have or obtain
intellectual property rights which could restrict our ability to market our
existing products and/or to innovate and develop new products.

ANY
PROBLEM OR DISRUPTION IN OUR SUPPLY CHAIN, INCLUDING SUPPLY OF OUR MOST
IMPORTANT RAW MATERIALS, OR IN OUR ABILITY TO MANUFACTURE AND DELIVER OUR
PRODUCTS TO OUR CUSTOMERS, COULD ADVERSELY AFFECT OUR RESULTS OF
OPERATIONS

We depend on our supply chain to enable
us to meet the demands of our customers. Our supply chain includes
the raw materials we use to manufacture our products, our production operations,
and the means by which we deliver our products to our customers. Our
business could be adversely affected by any problem or interruption in our
supply of the key raw materials we use in our CMP slurries and pads, including
fumed silica, or any problem or interruption that may occur during production or
delivery of our products, such as weather-related problems or natural
disasters.

For instance, Cabot Corporation
continues to be our primary supplier of particular amounts and types of fumed
silica. We believe it would be difficult to promptly secure
alternative sources of key raw materials, including fumed silica, in the event
one of our suppliers becomes unable to supply us with sufficient quantities of
raw materials that meet the quality and technical specifications required by our
customers. In addition, contractual amendments to the existing
agreements with, or non-performance by, our suppliers, including any significant
financial distress our suppliers may suffer during the current economic
recession, could adversely affect us.Also, if we
change the supplier or type of key raw materials we use to make our CMP slurries
or pads, or are required to purchase them from a different manufacturer or
manufacturing facility or otherwise modify our products, in certain
circumstances our customers might have to requalify our CMP slurries and pads
for their manufacturing processes and products. The requalification
process could take a significant amount of time and expense to complete and
could motivate our customers to consider purchasing products from our
competitors, possibly interrupting or reducing our sales of CMP consumables to
these customers.

WE
ARE SUBJECT TO RISKS ASSOCIATED WITH OUR FOREIGN OPERATIONS

We currently have operations and a
large customer base outside of the United States. Approximately 81%
and 80% of our revenue was generated by sales to customers outside of the United
States for the fiscal year ended September 30, 2008, and the six months ended
March 31, 2009, respectively. We encounter risks in doing business in
certain foreign countries, including, but not limited to, adverse changes in
economic and political conditions, fluctuation in exchange rates, compliance
with a variety of foreign laws and regulations, as well as difficulty in
enforcing business and customer contracts and agreements, including protection
of intellectual property rights.

34

WE
MAY PURSUE ACQUISITIONS OF, INVESTMENTS IN, AND STRATEGIC ALLIANCES WITH OTHER
ENTITIES, WHICH COULD DISRUPT OUR OPERATIONS AND HARM OUR OPERATING RESULTS IF
THEY ARE UNSUCCESSFUL

We expect to continue to make
investments in companies, either through acquisitions, investments or alliances,
in order to supplement our internal growth and development
efforts. Acquisitions and investments, including our acquisition of
Epoch Material Co., Ltd., a Taiwan-based company, the first closing of which we
completed in the fiscal quarter ended March 31, 2009, involve numerous risks,
including the following: difficulties in integrating the operations,
technologies, products and personnel of acquired companies; diversion of
management’s attention from normal daily operations of the business; increased
risk associated with foreign operations; potential difficulties in entering
markets in which we have limited or no direct prior experience and where
competitors in such markets have stronger market positions; potential
difficulties in operating new businesses with different business models;
potential difficulties with regulatory or contract compliance in areas in which
we have limited experience; initial dependence on unfamiliar supply chains or
relatively small supply partners; insufficient revenues to offset increased
expenses associated with acquisitions; potential loss of key employees of the
acquired companies; or inability to effectively cooperate and collaborate with
our alliance partners.

Further, we may never realize the
perceived or anticipated benefits of a business combination or investments in
other entities. Acquisitions by us could have negative effects on our
results of operations, in areas such as contingent liabilities, gross profit
margins, amortization charges related to intangible assets and other effects of
accounting for the purchases of other business entities. Investments
in and acquisitions of technology-related companies are inherently risky because
these businesses may never develop, and we may incur losses related to these
investments. In addition, we may be required to write down the
carrying value of these investments to reflect other than temporary declines in
their value, which could harm our business and results of
operations.

BECAUSE
WE HAVE LIMITED EXPERIENCE IN BUSINESS AREAS OUTSIDE OF CMP SLURRIES, EXPANSION
OF OUR BUSINESS INTO NEW PRODUCTS AND APPLICATIONS MAY NOT BE
SUCCESSFUL

An element of our strategy has been to
leverage our current customer relationships and technological expertise to
expand our CMP business from CMP slurries into other areas, such as CMP
polishing pads. Additionally, pursuant to our Engineered Surface
Finishes business, we are actively pursuing a variety of surface modification
applications, such as high precision optics. Expanding our business
into new product areas could involve technologies, production processes and
business models in which we have limited experience, and we may not be able to
develop and produce products or provide services that satisfy customers’ needs
or we may be unable to keep pace with technological or other
developments. Also, our competitors may have or obtain intellectual
property rights which could restrict our ability to market our existing products
and/or to innovate and develop new products.

BECAUSE
WE RELY HEAVILY ON OUR INTELLECTUAL PROPERTY, OUR FAILURE TO ADEQUATELY OBTAIN
OR PROTECT IT COULD SERIOUSLY HARM OUR BUSINESS

Protection of intellectual property is
particularly important in our industry because we develop complex technical
formulas for CMP products that are proprietary in nature and differentiate our
products from those of our competitors. Our intellectual property is
important to our success and ability to compete. We attempt to
protect our intellectual property rights through a combination of patent,
trademark, copyright and trade secret laws, as well as employee and third-party
nondisclosure and assignment agreements. Due to our international
operations, we pursue protection in different jurisdictions, which may provide
varying degrees of protection, and we cannot provide assurance that we can
obtain adequate protection in each such jurisdiction. Our failure to
obtain or maintain adequate protection of our intellectual property rights for
any reason, including through the patent prosecution process or in the event of
litigation related to such intellectual property, such as the current litigation
between us and DuPont Air Products Nanomaterials described in “Legal
Proceedings” in this Form 10-Q, could seriously harm our business. In
addition, the costs of obtaining or protecting our intellectual property could
negatively affect our operating results.

35

WE
MAY NOT BE ABLE TO MONETIZE OUR INVESTMENTS IN AUCTION RATE SECURITIES IN THE
SHORT TERM AND WE COULD EXPERIENCE A DECLINE IN THEIR MARKET VALUE, WHICH COULD
ADVERSELY AFFECT OUR FINANCIAL RESULTS

We owned auction rate securities (ARS)
with an estimated fair value of $8.1 million ($8.3 million par value) at March
31, 2009. We classified these investments as Other Long-Term Assets
on our Consolidated Balance Sheet as of March 31, 2009. If auctions
involving our ARS continue to fail, if issuers of our ARS are unable to
refinance the underlying securities, if issuers are unable to pay debt
obligations and related bond insurance fails, or if credit ratings decline or
other adverse developments occur in the credit markets, then we may not be able
to monetize these securities in the foreseeable future. We may also
be required to further adjust the carrying value of these instruments through an
impairment charge that may be deemed other-than-temporary which would adversely
affect our financial results.

OUR
INABILITY TO ATTRACT AND RETAIN KEY PERSONNEL COULD CAUSE OUR BUSINESS TO
SUFFER

If we fail to attract and retain the
necessary managerial, technical and customer support personnel, our business and
our ability to maintain existing and obtain new customers, develop new products
and provide acceptable levels of customer service could suffer. We
compete with other industry participants for qualified personnel, particularly
those with significant experience in the semiconductor industry. The
loss of services of key employees could harm our business and results of
operations.

RISKS
RELATING TO THE MARKET FOR OUR COMMON STOCK

THE
MARKET PRICE MAY FLUCTUATE SIGNIFICANTLY AND RAPIDLY

The market price of our common stock
has fluctuated and could continue to fluctuate significantly as a result of
factors such as: economic and stock market conditions generally and specifically
as they may impact participants in the semiconductor and related industries;
changes in financial estimates and recommendations by securities analysts who
follow our stock; earnings and other announcements by, and changes in market
evaluations of, us or participants in the semiconductor and related industries;
changes in business or regulatory conditions affecting us or participants in the
semiconductor and related industries; announcements or implementation by us, our
competitors, or our customers of technological innovations, new products or
different business strategies; and trading volume of our common
stock.

ANTI-TAKEOVER
PROVISIONS UNDER OUR CERTIFICATE OF INCORPORATION AND BYLAWS AND OUR RIGHTS PLAN
MAY DISCOURAGE THIRD PARTIES FROM MAKING AN UNSOLICITED BID FOR OUR
COMPANY

Our certificate of incorporation, our
bylaws, our rights plan and various provisions of the Delaware General
Corporation Law may make it more difficult to effect a change in control of our
Company. For example, our amended and restated certificate of
incorporation authorizes our Board of Directors to issue up to 20 million shares
of blank check preferred stock and to attach special rights and preferences to
this preferred stock, which may make it more difficult or expensive for another
person or entity to acquire control of us without the consent of our Board of
Directors. Also our amended and restated certificate of incorporation
provides for the division of our Board of Directors into three classes as nearly
equal in size as possible with staggered three-year terms.

We have adopted change in control
arrangements covering our executive officers and other key
employees. These arrangements provide for a cash severance payment,
continued medical benefits and other ancillary payments and benefits upon
termination of service of a covered employee’s employment following a change in
control, which may make it more expensive to acquire our Company.

36

ITEM
2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

ISSUER
PURCHASES OF EQUITY SECURITIES

In January 2008, we announced that the
Board of Directors had authorized a share repurchase program for up to $75.0
million of our outstanding common stock. Shares are repurchased from
time to time, depending on market conditions, in open market transactions, at
management’s discretion. We fund share repurchases from our existing
cash balance. The program, which became effective on the
authorization date, may be suspended or terminated at any time, at the Company’s
discretion. We view the program as a flexible and effective means to
return cash to stockholders. No shares were repurchased during the
fiscal quarter ended March 31, 2009.

ITEM
4. SUBMISSION
OF MATTERS TO A VOTE OF SECURITY HOLDERS

At the
annual meeting of stockholders of Cabot Microelectronics held on March 4, 2008,
the following proposals were approved:

Proposal
I - Election of three directors, each for a term of three years

Number
of Votes For Election

Number
of Votes Withheld

John
P. Frazee, Jr.

21,793,575

362,169

Barbara
A. Klein

21,972,653

183,091

William
P. Noglows

21,629,003

526,741

Proposal
II - Ratification of the selection of PricewaterhouseCoopers LLP as the
Company’s independent auditors for fiscal year 2009

A
proposal to ratify the selection of PricewaterhouseCoopers LLP as the Company’s
independent auditors for fiscal year 2009 was approved with 22,014,376 shares
cast for, 136,250 shares cast against, and 5,118 shares
abstaining.

37

ITEM
6. EXHIBITS

The
exhibit numbers in the following list correspond to the number assigned to
such exhibits in the Exhibit Table of Item 601 of Regulation
S-K: